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Enforcement of Arbitral Awards – Hong Kong & China

Updated: May 4, 2023

*Ritika Gupta & Dakshita Dubey


I. INTRODUCTION


With the transactions of the global economy shifting to Asia, it is inevitably leading to disputes, which as is standard usually get referred Developing into a hub of arbitration, the Hong Kong Special Administrative Region (“HKSAR”) was ranked as the third most preferred arbitral seat in the world and is also home of the Hong Kong International Arbitration Centre.


While the HKSAR region is an integral part of China, from the currency to the way the people live is distinct. The laws applicable to HKSAR are not as stringent as the laws applicable to the provinces of China, the same applies to the law governing the Dispute Resolution mechanisms, including Arbitration.


Section 84 of the Hong Kong Arbitration Ordinance (“HKAO”), deals with the enforcement of Awards before the Courts in Hong Kong and specifies that the Award once recognized shall be treated and enforced as a judgment of the Court. The People’s Republic of China (“PRC”) and the HKSAR signed the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (“the Arrangement”), in 1999, in order to facilitate the smooth enforcement of Arbitral Awards. In recent years, PRC and HKSAR have passed various other Agreements enhancing the pro-arbitration stance of the region.


The present article intends to highlight the laws governing the enforcement of an award in the region, by explaining the kinds of awards that can be enforced, the procedure adopted, and what the Courts of PRC and HKSAR have held regarding the same.


II. KINDS OF AWARDS


As given in Section 2 of HKAO, there are essentially the following four types of Awards that parties can enforce:


a. Convention Awards – As defined in Section 2(1)(g) of the HKAO, a Convention Award means an arbitral award made in a State or the territory of a State, other than China or any part of China, which is a party to the New York Convention.


b. Mainland Awards – As defined in Section 2(1)(o) of the HKAO, a Mainland Award means an arbitral award made in accordance with the Arbitration Law of the People’s Republic of China.


c. Macao Awards – As defined in Section 2(1)(m) of the HKAO, a Macao Award means an arbitral award made in Macao in accordance with the arbitration law of Macao.


d. Other Awards – The other awards include the awards which can not be defined as the above-mentioned definitions.


III. PROCEDURE UNDER HKAO FOR ENFORCEMENT


Division 1 of Part 10 (Sections 82-98D) of the HKAO deal with the Enforcement of Awards. In matters of enforcement, it is the position of the Courts of Hong Kong that the enforcement of arbitral awards should be "almost a matter of administrative procedure" and the courts should be "as mechanistic as possible".


There are two major requirements for the enforcement of an arbitral award in HKSAR- an Application for Enforcement coupled with the required documents, as mandated by the HKAO. There are two stages in the enforcement of an arbitral award in HKSAR:


a. Recognition stage – an award is converted into a HKSAR judgment;

b. Execution stage – the judgment can be enforced using an acceptable method of enforcement.


At the recognition stage, the court has to decide whether to grant permission to enforce the award. An application to the High Court for leave to enforce an award may be made ex-parte by affidavit. Additionally, the applicant must make full and frank disclosure of relevant information to the court in support of the application. If the award is in order, and the court grants permission, it will give a judgment “in terms of” the award. A party may then enforce the arbitral award by pursuing the same enforcement methods for court judgments, such as statutory demand, charging order, or writ of execution.


An application seeking leave to enforce an arbitral award under Section 84 of the HKAO is governed by Order 73, Rule 10 of the Rules of High Court (“RHC”), as amended by Section 13 of Schedule 4 of the HKAO. The application is made ex parte, supported by an affidavit. The Court may direct a summons to be issued if it considers it appropriate to give the other party an opportunity to be heard in an inter partes hearing. Once leave to enforce is granted, the Court's order must be drawn up by, or on behalf of, the applicant and personally served on the respondent, delivered to his or her last known or usual place of business or abode, or in such other manner as the Court may direct.


The award may be enforced 14 days after the date of service of the Court's order on the respondent or, under Order 73, Rule 10(6) of the RHC, the respondent may apply by way of summons and affidavit to set aside the order granting enforcement of the award within 14 days of being served. Failure to make a prompt objection to the Tribunal or the supervisory court may constitute estoppel. The party opposing enforcement has to show a real risk of prejudice and that its rights are shown to have been violated in a material way.


Notwithstanding the 14-day time limit to apply for leave to set aside the enforcement order, the Court has power the to grant an extension of time under Order 3, Rule 5 of the RHC. In Astro Nusantara International BV and Others v. PT First Media TBK, the Court of Final Appeal granted an extension of time for the award debtor to challenge the enforcement orders notwithstanding a 14-month delay, taking into account that the award debtor had a strong case that the relevant awards had been made without jurisdiction over certain parties and that the delay had not caused the award creditor any uncompensatable prejudice.


Along with the above-mentioned Application for Enforcement, the award creditor also needs to submit the documents as mandated in the HKAO. Furthermore, the time limit to apply for enforcement is six years.


Section 85 of the HKAO deals with the enforcement of “Other Awards”, and lists out the following documents to be submitted for the same:


a. the duly authenticated original award or a duly certified copy of it,

b. the original arbitration agreement or a duly certified copy of it,

c. if the award or agreement is not in either or both of the official languages, a translation of it in either official language certified by an official or sworn translator or by a diplomatic or consular agent.


The above criteria also need to be met for the enforcement of the Convention Award under Section 88, Mainland Award under Section 92, and Macao Award under Section 98C. Apart from this, for these awards, the parties may also bring an action in Court but this procedure is rarely followed as it is procedurally cumbersome.


IV. PRC ARBITRATION LAW – LAW ON ENFORCEMENT OF AWARD

PRC Arbitration Law is not as extensive or elaborate as the HKAO. Chapter VI deals with the Enforcement of Awards and gives the power to the party in favour of whom the award has been made to approach the Court in case of non-enforcement of the same.


The following instruments govern the recognition and enforcement of domestic awards in China:


b. Civil Procedure Law (“CPL”).


For the purposes of recognition and enforcement, the law governing PRC divides arbitral awards into the following four main types, depending on a number of factors, including the place of the arbitration institution, the place of arbitration, and/or the presence/absence of foreign elements in the dispute:


a. Local awards: which are rendered in mainland China by Chinese arbitration institutions over disputes without a foreign element.


b. Foreign-related awards: which are rendered in mainland China by Chinese arbitration institutions and arguably foreign arbitration institutions over disputes with foreign element(s).


c. Hong Kong, Macau, and Taiwan awards: which are rendered in Hong Kong, Macau (by arbitration institutions and arbitrators in Macau), or in Taiwan (by arbitration institutions and ad hoc arbitral tribunals in Taiwan).


d. Foreign awards: which are rendered in jurisdictions other than mainland China, Hong Kong, Macau, and Taiwan. Depending on whether a foreign award is subject to the New York Convention, foreign awards are further divided into New York Convention awards and non-New York Convention awards.


There are no "recognition" proceedings for a domestic award. Once a domestic award is rendered, the award creditor can apply for its enforcement before the competent court directly.


For foreign awards, recognition and enforcement proceedings can be applied together or only recognition proceedings can be started. In the case of the first scenario, if once the trial division of the court recognizes the award, which gives the award effect in mainland China, the enforcement division can enforce the award as if it were a domestic award. In the latter case, the court will only rule on the recognition issue.


V. ENFORCEMENT LAW AS UNDER THE 1999 ARRANGEMENT


In the 1999 Arrangement between the PRC and the HKSAR, the main agenda was to allow the awards of both jurisdictions to be enforceable at each place. For this purpose, the Arrangement came into being.


It attempted to broaden the scope of arbitral awards under the mutual enforcement regime and to align the position with the international approach under the New York Convention. Most of the laws followed the UNICTRAL Model Law with certain adjustments.


However, there were places of ambiguity in the Arrangement which led to differences in interpretation in Mainland and Hong Kong. For example, it was a matter of dispute if recognition of an award as a procedural requirement is a pre-requisite for its enforcement, considering that the Arrangement did not mention the recognition of an award.


Similarly, Parallel Proceedings for enforcement were not allowed, which were not commercially viable for parties who had assets in multiple jurisdictions. The Courts of Hong Kong had held that until proceedings for the enforcement of award at Mainland are concluded, the same proceeding cannot be instituted in Hong Kong, causing losses to the Award Creditor.


Therefore, there was a need for a uniform set of rules to fill this void of uncertainty created by the rules.


VI. SUPPLEMENTAL ARRANGEMENT 2020


On 27 November 2020, the Chinese Supreme People’s Court and the Hong Kong Department of Justice signed the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (“Supplemental Arrangement”). The Supplemental Arrangement modified the existing Arrangement of 1999.

The main content of the Supplemental Arrangement is as follows:


a. Article 1 clarifies the position of the two stages of enforcement, i.e., recognition and enforcement. Since the 1999 Arrangement does not expressly state the recognition procedure for arbitration awards, debates had been going on in the Mainland Courts about whether it is a pre-requirement for enforcing arbitral awards made in Hong Kong against an award debtor’s assets. The Supplement Arrangement clarified this position of law by clearly stating that the enforcement of arbitral awards specified under the 1999 Arrangement shall be interpreted to cover both procedures for the “recognition” and “enforcement” of the arbitration awards.


b. Article 2 clarifies the types of arbitral awards under the 1999 Arrangement. It specifies that all arbitral awards made pursuant to the Arbitration Ordinance of Hong Kong can be enforced in the Mainland pursuant to the Supplemental Arrangement. That includes all awards rendered in Hong Kong-seated arbitrations, whether institutional or ad hoc. This aligns with the usual international approach to the seat of arbitration under the New York Convention.


c. Article 3 allows for parallel enforcement of awards both in Hong Kong and China simultaneously, which was earlier barred by the HKAO, under Section 93. This amendment is particularly helpful for enforcement against parties who have assets in multiple jurisdictions, as it facilitates timely enforcement and helps to prevent asset dissipation.


d. Article 4 recognizes that before or after the enforcement of an award, the courts may order preservation measures in accordance with the applicable law. The Supplemental Arrangement fills the void and ensures that interim measures are available throughout the entire lifespan of an arbitration, including prior to the commencement of the proceedings (under the Interim Measures Arrangement), during the arbitral proceedings (under the Interim Measures Arrangement), and after the conclusion of the proceedings at the enforcement stage of the award (under the Supplemental Arrangement).


The Supplemental Agreement is a progressive step towards creating a pro-arbitration region, allowing parties to move with the least hassle if the award is rendered in their favour.


VII. EXCEPTIONS TO ENFORCEMENT OF AN AWARD


The exceptions to the Enforcement of an Award against an Award Debtor, as given in Section 86 of HKAO, are the following:


a. Incapacity of Parties;

b. Void arbitration agreement;

c. Violation of audi alteram partem;

d. Deals with matters beyond the scope of arbitration;

e. Wrong arbitral procedure used;

f. If the award has already been set aside or is not yet binding on the parties;

g. Contrary to the public policy of Hong Kong;

h. Can not be dealt under the law of Hong Kong.


In considering whether or not to refuse the enforcement of the award, the court does not look into the merits or at the underlying transaction.


In dealing with applications to set aside an arbitral award, or to refuse enforcement of an award, whether, on the ground of not having been given notice of the arbitral proceedings, inability to present one's case, or that the composition of the tribunal or the arbitral procedure was not in accordance with the parties' agreement, the court is concerned with the structural integrity of the arbitration proceedings. In this regard, the conduct complained of "must be serious, even egregious", before the court would find that there was an error sufficiently serious so as to have undermined the due process.


Another ground on which the awards are not enforced against the corporate debtor, is through the exception of crown immunity.


Crown Immunity is a common law doctrine based on the principle that the Crown enjoys immunity from being sued in its own courts. Crown immunity is not limited to immunity from suit, but also extends to immunity from execution. Any assertion of Crown immunity must come from the “Crown”, which in Hong Kong now means the PRC Central People’s Government (“CPG”).


The Hong Kong Court has also considered the assertion of Crown Immunity by reference to:


a. The laws of the country of incorporation - The laws of the country of the company establish whether the entity is treated as an agent or instrumentality of the Crown.


b. The Common Law Control test - The common law control test operates on a case-by-case basis, which looks for the nature and degree of control exercised by the Crown. An enjoyment of independent discretion in a company’s operation has consistently been held to be a powerful indicator of a company’s independence from the Crown.


VIII. CONCLUSION


The HKSAR is a pro-arbitration region and Courts generally have very limited intervention while enforcing awards, making HKSAR a popular destination for dispute resolution by giving parties the assurance that arbitral awards in their favor can be executed in HKSAR.


With the recent Ordinances, the region is aiming to be a commercial arbitration hub, keeping in mind that in commercial disputes, time is of the essence and hassle-free legal procedures are needed the most.


In a comparison, HKSAR procedures are more direct and elaborative than the procedures in PRC, which is why, an active attempt is taken to constantly bring in amendments that will further help in shaping the pro-arbitration stance of HKSAR.



 

*Students at Chanakya National Law University, Patna, Bihar.

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